Concerning trends rearing their heads

It has been over a year since the Financial Services Board (FSB) released its Treating Customers Fairly (TCF) objectives. While this has not yet been entrenched in law, the regulator is expecting companies to abide by these objectives.

With this in mind, we need to ask ourselves whether we are improving as an industry. Are we living up to the values outlined by TCF?

The numbers tell a story

The Financial Advisory and Intermediary Services (FAIS) Ombud recently released its results for 2014/15; and if we have to go by the numbers released in the report, we are improving, but there is still significant room for improvements.

According to the statistics released by the Ombud, its office had to deal with 9 003 new complaints during the period under review. While this is a decrease of 436 complaints when compared to 2013/14, there was a significant increase in the number of justiciable complaints. The Ombud had to deal with 3 699 justiciable complaints which is an increase of 508 complaints when compared with similar complaints dealt with during the 2013/14 period.

This means that there are a lot of cases that the Ombud is dismissing; in fact, of the 9 003 complaints that the Ombud received, it dismissed 2 496 of them. This means that 4 524 complaints were referred, 614 complaints were settled and 1 369 complaints were carried over into the 2015/16 year.

Which industries are the main culprits? Statistics show that 2 940 complaints came from the short-term sector while 2 491 complaints came from the long-term sector. There was also a slight increase in complaints from the investment sector which 1 266 complaints being lodged at the Ombud.

The best performing sectors were the retirement sector with 347 complaints and the medical scheme sector with only 132 complaints.

A view from above

Despite the fact that there were fewer complaints during the period under review, the Ombud still faced significant challenges.

Noluntu Bam, FAIS Ombud, says that the Ombud had to shelve as many as 2 000 complaints relating to public property syndication schemes, while waiting for the pronouncement of the Appeals Board on the two determinations of the Siegriest and Bekker complaints.

The question before the Appeals Board was the liability of the directors of the scheme along with a challenge against the procedures used by the Ombud to investigate complaints. “Having considered these to be fundamental questions that could change the way the FAIS Ombud resolves public property syndication complaints, we took a cautious decision not to proceed with the investigation of all property syndication complaints, until the Appeals Board’s pronouncement,” says Bam.

Chairman of the FAIS Ombud, Abel Sithole, voiced his concerns on a completely different matter.

“Amongst the new challenges that the Office encountered during the year under review are the complex investment schemes that lure investors with the promise of exceedingly high returns. Many investors who respond to these solicitations are senior citizens who are ultimately left destitute after losing all their money to these unscrupulous schemes. Often, by the time the investors lodge their complaints with the FAIS Ombud, there is very little left to salvage as these schemes either face liquidation or are already liquidated,” says Sithole.

Concerning trends

According to the Ombud, there are a few concerning trends which are increasing in the industry.

Sithabile Sabela, Assistant Ombud, points towards an upward trend in complaints received regarding disability products. “There is clearly a need to pay attention to the manner in which these products are sold as there is a clear indication of overselling in many instances,” says Sabela.  

Compounding the issue are the various channels through which these products are sold without the necessary advice. In many of the complaints, the disability products were sold adjunct to a credit transaction by employees of the retail outlet who do not have the skills to sell a life or disability product.

Short-term bugbear

David Davidson, Assistant Ombud, points out that there is still a belief that providers of short-term insurance do not need to provide advice to their clients. This is evident from the many complaints received.

"The main concern is that the focus of short-term insurance would appear to be providing the most affordable premium possible, without any regard for what may or may not be in the client’s interests. Many Financial Services Providers in this area often recommend the replacement of existing policies in favour of more affordable options, without disclosing the impact that higher excesses, more stringent security requirements, or enhanced exclusions may have on any potential future claims," says Davidson.

Editor’s Thoughts:
How can we work past these challenges to improve the industry? Among other things, the Ombud has encouraged insurers and brokers/advisers to work with the Ombud to iron out existing issues. Perhaps just having TCF objectives is not enough? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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